Wednesday, May 11, 2011

Can Ivory Coast power transfer herald change for diamond trade?

President Alassane Ouattara has taken over the reins of power following the capture last month of former leader Laurent Gbagbo who refused to step down despite losing elections in November. Will the country's diamond industry benefit as a result?

Could recent developments in the troubled Ivory Coast, widely known as Cote d'Ivoire, with the internationally recognized winner of presidential elections taking office, portend positive change for the West African country?

President Alassane Ouattara is currently making efforts to consolidate his position following the capture last month of former leader Laurent Gbagbo who refused to step down despite losing elections in November. After months of fighting and killing, French soldiers helped bring about Gbagbo's departure from office. More than 3,000 people are estimated to have been killed, while a million were displaced during the almost five months of chaos that ensued.

However, the UN Security Council voted to extend a ban on diamond trading with the Ivory Coast, as well as an arms embargo, until April 30, 2012. The original ban on exporting diamonds was put in place in 2005. The decision, reached in a unanimous vote, came about as a result of the fragile political situation in the country which the Security Council believes continues to pose a threat to international peace.

In addition to holding parliamentary elections, a national reconciliation effort is needed after years of internecine conflict and repression, observers say. Although the European Union has lifted some of its sanctions, and the African Union has reinstated Ivory Coast's membership, the country has a long way to go before its diamonds can be exported. The Ivory Coast is the only country whose stones still fit the original Kimberley Process definition of conflict diamonds in that they are illegally traded with the proceeds financing rebel factions.

However, there does appear to be some hope for the country since the UN Security Council will review its sanctions decision within six months, by October 31, to determine whether it should be modified or lifted. The decision will be influenced by whether progress is made in the peace process, human rights and parliamentary elections.

Although, President Ouattara has taken over the reins of power after being widely recognized in the West as the winner of the election held late last year, analysts believe it is still too early to determine whether peace will hold, which is why the UN Security Council is stepping gingerly concerning the issue. Once seen as a model of stability, Ivory Coast descended into vicious internal strife a decade ago.

With a population of approximately 21 million, Ivory Coast became independent in 1960, and until 1993 was governed by Felix Houphouet-Boigny. It maintained close political and economic ties with its West African neighbours, and the West, especially with France. Since the end of his rule, however, the country saw a coup d’état, in 1999, and a civil war that started in 2002. Since then, peace deals have alternated with renewed violence as the country has attempted to edge its way towards a political resolution.

Diamonds were first discovered in the Ivory Coast in 1927, in the central region of Seguela, according to the Kimberley Process Certification Scheme (KPCS). More diamond deposits were discovered and a state-owned company began mining operations. In 1978, with the running down of diamond reserves and a consequent fall in production levels, low returns on investment, the Ivory Coast's government decided to suspend formal mining operations.

A lengthy period of neglect ensued, but during the 1990s, after a drop in the price of cocoa, the government decided to again focus on the mining sector. However, the renewed interest in diamond mining coincided with the wars in neighbouring Liberia and in Sierra Leone and the use of conflict diamonds to finance civil war led to more widespread mining.

The country became a route for exporting diamonds from Liberia and war-torn Sierra Leone. However, despite UN sanctions, illegal diamond trading is believed to continue in Côte d'Ivoire. Rough diamonds are exported out of the country via its porous borders to neighboring states and international trading centres through the northern Forces Nouvelles (New Forces) controlled part of the country, a group which is reported to be using these funds to re-arm.

The New Forces have controlled the northern half of Ivory Coast since 2002, and it is in the northern area of the Ivory Coast that most of the country's diamond deposits are located. As a result, the rebel group levies taxes on the production and trade of the stones. The stand-off between former President Laurent Gbagbo and President Alassane Ouattara took part in the southern half of the country.

Stéphane Chardon, chairman of the Kimberley Process's Working Group on Monitoring, says Ivory Coast is the only country where there are conflict diamonds according to the original KP definition, and the main aim is to work to stop diamonds from the country being used to finance illegal activities. He believes the total value of diamond production in Ivory Coast at just $18 million-$20 million, a tiny fraction of the $10 billion-$12 billion global trade in diamonds.

The relatively low figure for the country's production reflects the small level of Ivorian diamond mining. Artisanal miners use hand-held sieves to pan for diamonds in rivers and streams and account for the majority of the country's output. Although there are larger deposits in kimberlite pipes underground, foreign investors will not be tempted to deal with the country and bring in new technology as long as the political situation remains so volatile and complicated.

Global Witness campaigner Daniel Ballint-Kurti in London, says there could be a glimmer of hope that change could take place in the fact that President Ouattara declared that the rebel forces were his and that they were his soldiers. During the standoff with former leader Laurent Gbagbo, the forces marched on the country's business capital of Abidjan to help in ousting Gbagbo. "Ouattara was tacitly supported by the rebels and they are in alliance with him," said Ballint-Kurti. "Indeed the rebel leader is now prime minister and defence minister.

"Whether that can be translated into bringing the north of the country under central government control, however, is another question altogether. At best, it is a medium-term aim. Clearly, from our point of view, we would need to see that the north comes under civilian control, that the rebel forces in the north are dispersed before we could say that Ivory Coast's diamonds can be exported."

Inadequate controls over the diamond trade in neighbouring countries, and in international diamond centres, mean that Ivorian conflict diamonds are still being smuggled out of the country and laundered into the legitimate diamond trade.

A 2010 UN Group of Experts report states: “Neighbouring states, specifically Burkina Faso, Guinea, Liberia and Mali, are either unable or unwilling to monitor and enforce the embargo on the import of Ivorian rough diamonds. Côte d’Ivoire’s neighbours justify their inability to comply with resolution 1893 (2009) by citing a lack of resources. The Group acknowledges these problems, but notes a lack of political will in most cases.”

Meanwhile, Global Witness campaigner Elly Harrowell said that insufficient steps had been taken to deal with the issue of diamonds from the Ivory Coast. She attributes the lack of action to the Kimberley Process not having the capacity to deal with more than one issue at a time. For the past two years, the focus of the KP in respect of diamond mining has been on Zimbabwe. The issue of the Ivory Coast has consequently been swept under the radar, she commented.

However, KP Chair Mathieu Yamba recently wrote in a letter to member countries: “I have every confidence that the KPCS has the ability and the political will to tackle the challenges facing Côte d’Ivoire diamonds effectively through collective and concerted efforts. It is imperative that the KPCS address this matter constructively and decisively, thereby ensuring that Ivorian diamonds do not infiltrate the legitimate trade as this could be harmful for the diamond industry as whole.”

In addition, the World Federation of Diamond Bourses has asked its 29 affiliated bourses to advise their members of this letter, and ensure that its contents are posted on the bourses’ notice boards and websites and accompanied by translations in the various local languages

Ironically, the country, bordering the North Atlantic Ocean, between Ghana and Liberia, had a thriving economy in the 1960s and 1970s due to its cocoa production and export industry, in addition to coffee and palm oil industries, while foreign investors found the country attractive, thus made making Ivory Coast one of the most prosperous of the tropical African states. Ivory Coast also has other natural and mineral resources, such as petroleum, natural gas, diamonds, manganese, iron-ore, cobalt, bauxite, copper, gold, nickel, tantalum, silica sand, and clay.

However, its dependence on those crops puts it at the mercy of fluctuations in international prices for those products and weather conditions. Indeed, the country's economy is now largely market-based and relies heavily on agriculture, with smallholder cash crop production being widespread. It is estimated that approximately two-third of the population is dependent on agriculture.

Ivory Coast is a member of the Kimberley Process but the government, in line with the UN Security Council ban, has itself suspended all exports of rough diamonds to help support its efforts to restore social stability and ensure systems are in place to meet the KP requirements.

The 2010 Kimberley Process Certification Scheme (KPCS) enforcement seminar report to the KPCS plenary said that Ivory Coast diamond production, which totalled about 300,000 carats annually before the conflict, and worth about $25 million, is concentrated in the two areas around Séguéla-Bobi-Diarabana, covering about 100 square kilometers, and Tortiya covering about 30 square kilometers. While production levels dropped during the first few years of the previous conflict, recent reports suggest that diamond mining in Séguéla has expanded.

Reports constantly point to the absence of effective border controls, which allows rough diamond trade in Côte d’Ivoire to extend, almost seamlessly, into Burkina Faso and Mali, with concerns that Ivorian diamonds continue to be illegally exported through Guinea and Liberia.

The KP must focus on creating awareness, particularly in trading centres, to remind people of the fact that diamonds should not be leaving the borders of Côte d’Ivoire, says Harrowell.